I just took my business taxes to my tax preparer (yes, I have someone else do my business taxes) and we spent most of our time going over the information needed for my home office deduction. Let me take you through the discussion, which was very thorough, so you can understand the information you should bring with you for this important tax deduction.
First, a reminder that you can only claim a deduction for home office expenses if your home office is used BOTH REGULARLY and EXCLUSIVELY for business. Nothing personal in your office, including items and time spent. Nothing at all. This is pretty difficult to follow. My “deduction area” is just the area of my desk and some book shelves, just to be sure.
What’s needed for the home office deduction calculation:
1. For the percentage calculation, you will need to know the total square footage of your home and the square footage of the area used regularly and exclusively for your business.
2. To calculate home use deductions, you will need information on home expenses (totals for the year):
- Rent, or
- If you own your home, mortgage interest and property taxes
- Homeowner’s insurance (check with your tax preparer about the deductibility of renter’s insurance)
- Utilities expenses, but not phone or Internet service
- Phone and Internet service, if you don’t have separate phone/Internet for your business. You will need to estimate the business use percentage.
- Costs of home repairs directly affecting the business. If you repair the whole roof, you can take a deduction for a percentage for your business space, but if you put a patio on the other side of the house, that’s not a business expense
- Damage to your home from casualties, like tornado, flooding, fire
3. Include any direct expenses related to your home business, such as new carpeting or paint in that area.
Other business expenses, like equipment costs or items you purchase to set up your home office, are deductible business expenses, but they aren’t used in the home office deduction calculation.
IRS form 8829 is used to calculate the home office deduction. Read through this form to make sure you have included everything specific that should be included in your tax filing.
Disclaimer: This article and all the content on this GuideSite, are intended to be general information; I’m not a CPA or tax professional. Every situation is different, so check with your tax advisor before completing your business taxes.
Read more about:
How to Prepare for Home Office Tax Deductions
How to prepare for an IRS audit of your home business
At Home Businesses and Taxes
Image: Jean Murray